Hope keeps people happy and healthy so dont always tell the truth

Interest rates in Australia have just been reduced by 0.5% in the hope that this will stimulate the economy. Will it work? Uncertain. But will politicians say it will work in the coming federal budget? Almost undoubtedly.

Perhaps displays of optimism are not such a bad thing, even if they are unwarranted.

In a study that just came out, we (myself, David Johnston at Monash and Gigi Foster at UNSW) found that optimistic expectations are key to making  people happy with their lot in life. People are much less affected by regret than previously thought, nor do they tell themselves things will be bad in the future so that the present will be a pleasant surprise: people systematically over-estimate how rosy the future should be and this is crucial for their well-being.

Our study, of which the working paper version is here and the on-line article is here (for those with access) has the following highlights:

  1. In a sample of over 10,000 Australians followed for 9 years (the HILDA), it turns out that people’s expected future health has about 1/6th the effect on current happiness as their actual current health, with any difference between the health that was expected and that eventuated having very little effect.
  2. Future imagined health was more important to Australians over 35 and to women than to men and those under 35, for whom future imagined health was not important for happiness.
  3. As a result, we concur with the medical literature that has long argued that hope is important in itself for health, as witnessed by the strong placebo effect. In the medical literature hope has now become the default standard for new medicines in that new medicines have to be better than placebos if they are deemed to be of real use. Our advise is also to err on the side of optimism whenever possible.

Now, to classically trained economists, the fact that hope itself is a consumption good quite apart from realised consumption may be surprising, but in the reality of economic policy the big lesson from this kind of finding has been incorporated long ago: always pretend the economy will keep going strong or will soon improve unless there are really strong indications to the contrary. Hang on to see many an overly optimistic statement in the Federal budget next week …. and rightly so.

For more information on the study, see here.

10 thoughts on “Hope keeps people happy and healthy so dont always tell the truth

  1. If they added perceived control of outcomes to the data, then they would have had a nice interaction also. I assume this is one reason why politicians generally try and attribute what goes on in the economy far more to the types of things they do than the reality of the situation. It’s also why when things go wrong it looks so bad — it looks like they have lost control of what is going on (even if there is really little that can actually be done), which is worse than something simply going wrong.

  2. So this also implies that persistent pessimism and negativity makes people unhappy with their lot and their government. Tony Abbott seems to have known this some time ago! So, do ethical issues in relation public responsibilities arise if Paul et al’s findings are correct?

  3. Interest rates in Australia have just been reduced by 0.5% in the hope that this will stimulate the economy. Will it work? Uncertain. But will politicians say it will work in the coming federal budget? Almost undoubtedly.

    Perhaps displays of optimism are not such a bad thing, even if they are unwarranted.

    It always amuses me how people think a material drop in interest like this one is indicative of positive things when in nearly all cases it is a sign of economic weakness.

  4. Could be why climate change has gone off the boil; if politicians cant fix it who wants to volunteer to stare down the abyss?

  5. … the fact that hope itself is a consumption good quite apart from realised consumption may be surprising, but in the reality of economic policy the big lesson from this kind of finding has been incorporated long ago…

    I thought they were calling it the “Confidence Fairy” these days? We say, “fairy” because that provides unconditional proof that it can’t be important. Hope you understand how that works, because I surely don’t.

    … always pretend the economy will keep going strong …

    Every time you lie to people, they believe you less the next time. I’ve always thought of this process as learning, but other people say, “adaptive system” or “by gum, it worked for him, why can’t it work for me?”

  6. conrad,

    we did actually put locus of control measures in some of our surveys on this topic, so that is something to look into. From memory, locus of control is highly related to optimism. In many ways, they are similar concepts: if you believe you can do anything, then that anything includes unlikely\impossible things.

    John,
    yes, the role of nay-sayer in this dynamic is interesting. Oppositions trying to foster a mood of pessimism which would then be held against the government. Almost like their role is to pop the bubble.

    Tel,

    all the evidence is that lying is ubiquitous and rewarded, within bounds. In the study above, people lie to themselves habitually and this is good for them. In placebo-effects they also lie to themselves but are aided by others to keep it up. Do you think less of yourself every time you catch yourself telling a lie? I bet not. There is huge disconnect between the social norm not to lie and our need for self-esteem that underlies the optimism. In reality, self-esteem usually wins.

  7. Nice to see someone being so upfront and honest about advocating lies. These days so many liars are just thoughtless, forgetting to make it clear how little respect they have for the truth.

    If you stir the milk into your coffee, and then stir the opposite direction, it’s very difficult to stir the milk back out of the coffee again. If you write a lovely poem on a piece of paper, then burn the paper, then where has the poem gone? You won’t find it in the smoke, nor by raking the ashes. These are are well known properties of entropy — it always wins. You can delay it, or move it around, but you can’t beat it (or at least no one has thus far beaten entropy).

    Just my personal opinion, but I think that telling lies to yourself is the doorway to insanity, and thanks to entropy, once you step through that particular door, there’s no way back.

  8. It seems to me that if optimistic expectations are a key to making people happy we should be giving more attention to consumer confidence indicators as measures of changes in well-being in the short term. For elaboration, see something I wrote about this a few months ago.

  9. Tel, very funny but by that measure almost everyone is insane. What you are left with is the manic-depressives: people who think they are below-average drivers, who don’t believe in any supernatural being, and truly are willing to see the world as it is.

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